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In the Court of Appeal of the Republic of Singapore
[1995] SGCA 2
Civil Appeal No 121 of 1994, No 130 of 1994, No 131 of 1994
Between
grounds of decision
This judgment is subject to final editorial corrections approved by the court and/or redaction pursuant to the publisher’s duty in compliance with the law, for publication in LawNet and/or the Singapore Law Reports. |
Kumagai Gumi Co Ltd v Zenecon Pte Ltd & Ors
[1995] SGCA 2
Civil Appeal No 121 of 1994, No 130 of 1994, No 131 of 1994
Karthigesu JA; L P Thean JA; Yong Pung How CJ
05 January 1995
Karthigesu JA; L P Thean JA; Yong Pung How CJ
05 January 1995
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Judgment:
Judgment:
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3 < Delivered by L P Thean JA >
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5 Cur Adv Vult
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41 In respect of the first finding, the appellants complained
that the learned judge was wrong in disbelieving Low. Low's
explanations for these transactions were first, that in respect
of the Guthrie share transactions, they were made with the full
knowledge of Otsuka and the latter approved the proposal so long
as it would result in KZ making a profit, and secondly, that as
for the 1991 shares purchases he had had confidential discussions
with Otsuka and the latter had entrusted Low to steer a path for
KZ and its subsidiary as he thought fit, and that Otsuka and he
had agreed to turn KPM into an investment company. Hence, in line
with these discussions, Low decided that KPM should invest in Pan
Can shares and KZ Investments shares and that KZ Investments
should invest in Aokam shares. The learned judge did not accept
these explanations. It was submitted on behalf of the appellant
that the learned judge erred in this respect. These are
essentially findings of fact made by the learned judge who had
seen and heard Low and other witnesses who gave evidence. In not
accepting Low's explanation, the learned judge analysed Low's
evidence in some detail and tested it against other evidence and
came to the conclusion that `the alleged agreement with Otsuka
either for the Guthrie share purchases or the 1991 share
purchases, < was > nothing but a convenient afterthought on
Low's part'. In our judgment, this conclusion of the learned
judge, on the evidence before him, was unimpeachable.
that the learned judge was wrong in disbelieving Low. Low's
explanations for these transactions were first, that in respect
of the Guthrie share transactions, they were made with the full
knowledge of Otsuka and the latter approved the proposal so long
as it would result in KZ making a profit, and secondly, that as
for the 1991 shares purchases he had had confidential discussions
with Otsuka and the latter had entrusted Low to steer a path for
KZ and its subsidiary as he thought fit, and that Otsuka and he
had agreed to turn KPM into an investment company. Hence, in line
with these discussions, Low decided that KPM should invest in Pan
Can shares and KZ Investments shares and that KZ Investments
should invest in Aokam shares. The learned judge did not accept
these explanations. It was submitted on behalf of the appellant
that the learned judge erred in this respect. These are
essentially findings of fact made by the learned judge who had
seen and heard Low and other witnesses who gave evidence. In not
accepting Low's explanation, the learned judge analysed Low's
evidence in some detail and tested it against other evidence and
came to the conclusion that `the alleged agreement with Otsuka
either for the Guthrie share purchases or the 1991 share
purchases, < was > nothing but a convenient afterthought on
Low's part'. In our judgment, this conclusion of the learned
judge, on the evidence before him, was unimpeachable.
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43 Thirdly, in the case of the investment in KZI < KZ
Investments > , it had the effect of locking $1.3 million of
KI's < KPM's > funds into KZI, as KI went in as a minority
shareholder. KI would have great difficulty in recovering this
investment. The investment therefore does not make commercial
sense for KI. I think there is much in the submission of
Kumagai's counsel that the only reason why KI was asked to take
the shares was to help Zenecon to gain a 51% voting power in KZI.
It was a transaction ultimately prejudicial to Kumagai for Low's
own purpose. The same goes for the Pac Can shares.
Investments > , it had the effect of locking $1.3 million of
KI's < KPM's > funds into KZI, as KI went in as a minority
shareholder. KI would have great difficulty in recovering this
investment. The investment therefore does not make commercial
sense for KI. I think there is much in the submission of
Kumagai's counsel that the only reason why KI was asked to take
the shares was to help Zenecon to gain a 51% voting power in KZI.
It was a transaction ultimately prejudicial to Kumagai for Low's
own purpose. The same goes for the Pac Can shares.
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56 The authorities relied upon by counsel on analysis do not
really support his contentions. First is the case of Scottish
Co-Operative Wholesale Society Ltd v Meyer and anor < 1959
> AC 324. There, the society formed a subsidiary company, the
subject of the proceedings, (`the subject company') to carry on
the business of manufacture and sale of rayon materials. The two
petitioners were appointed joint managing directors of the
subject company, and were the minority shareholders while the
society was the majority shareholder and appointed 3 nominees as
directors of the subject company. The business of the subject
company had been very lucrative and the company prospered. The
society sought to purchase the shares of the minority
shareholders at an under-value. When their attempt failed, they
adopted the policy which had the effect of transferring the
subject company's business to a new department within the
society, thereby causing a decline in the value of the subject
company's shares. The nominee directors of the society on the
board of the subject company, though aware of the society's
policy, did not inform the petitioners of such policy but
promoted the society's plans. The petitioners presented a
petition under the then s 210 of the United Kingdom Companies Act
1948. The House of Lords held that the society had acted
oppressively towards the minority shareholders in the affairs of
the subject company, and ordered the society to purchase their
shares.
really support his contentions. First is the case of Scottish
Co-Operative Wholesale Society Ltd v Meyer and anor < 1959
> AC 324. There, the society formed a subsidiary company, the
subject of the proceedings, (`the subject company') to carry on
the business of manufacture and sale of rayon materials. The two
petitioners were appointed joint managing directors of the
subject company, and were the minority shareholders while the
society was the majority shareholder and appointed 3 nominees as
directors of the subject company. The business of the subject
company had been very lucrative and the company prospered. The
society sought to purchase the shares of the minority
shareholders at an under-value. When their attempt failed, they
adopted the policy which had the effect of transferring the
subject company's business to a new department within the
society, thereby causing a decline in the value of the subject
company's shares. The nominee directors of the society on the
board of the subject company, though aware of the society's
policy, did not inform the petitioners of such policy but
promoted the society's plans. The petitioners presented a
petition under the then s 210 of the United Kingdom Companies Act
1948. The House of Lords held that the society had acted
oppressively towards the minority shareholders in the affairs of
the subject company, and ordered the society to purchase their
shares.
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58 The < petitioners > , as members of the company, can
only succeed if they prove that "the affairs of the
company" - and I emphasise the words "of the
company" - were "being conducted in a manner oppressive
to some part of the members" ie to themselves.
only succeed if they prove that "the affairs of the
company" - and I emphasise the words "of the
company" - were "being conducted in a manner oppressive
to some part of the members" ie to themselves.
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63 and then concluded thus:
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76 Lastly, Re A Company < 1987 > BCLC 141 was also cited in
support. That was an entirely different case. Two shareholders of
a company together with the respondent were the only shareholders
and directors of the company presented a cross-petition under s
459 of the United Kingdom Companies Act 1985 (which is the
corresponding provision of s 216 of our Act) alleging that the
affairs of the company had been conducted in an unfairly
prejudicial manner and seeking an order that the respondent sell
her shares to them. The grounds of complaint were that the
respondent had paid off a loan which the company owed to the bank
without informing the company and had taken the transfer of the
bank's security; that the respondent had interfered in the day to
day management of the company; that an ineffective notice for the
repayment of the loan had been served on the company and that the
respondent's personal solicitor had at a board meeting asked the
petitioner to transfer their shares to the respondent and to
resign as directors. A motion was taken out to strike out the
cross- petition on the ground that it disclosed no cause of
action or alternatively that it was an abuse of the process of
the court or that it was bound to fail. It was held that the
matters complained of were not the affairs of the company but the
conduct of the respondent. Unquestionably in that case, the
matters complained of were not the affairs of the company.
support. That was an entirely different case. Two shareholders of
a company together with the respondent were the only shareholders
and directors of the company presented a cross-petition under s
459 of the United Kingdom Companies Act 1985 (which is the
corresponding provision of s 216 of our Act) alleging that the
affairs of the company had been conducted in an unfairly
prejudicial manner and seeking an order that the respondent sell
her shares to them. The grounds of complaint were that the
respondent had paid off a loan which the company owed to the bank
without informing the company and had taken the transfer of the
bank's security; that the respondent had interfered in the day to
day management of the company; that an ineffective notice for the
repayment of the loan had been served on the company and that the
respondent's personal solicitor had at a board meeting asked the
petitioner to transfer their shares to the respondent and to
resign as directors. A motion was taken out to strike out the
cross- petition on the ground that it disclosed no cause of
action or alternatively that it was an abuse of the process of
the court or that it was bound to fail. It was held that the
matters complained of were not the affairs of the company but the
conduct of the respondent. Unquestionably in that case, the
matters complained of were not the affairs of the company.
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78 While it is uncontroversial that a nominee director may not
prefer the interests of his principal over his duties to the
company, nevertheless, when there is no conflict of such
interests with his duty, he may take into account the interests
of his principal. The principal clearly had an interest in how he
carries out his duties as a director of the subsidiary, as well
as how he serves the interests of the principal. It does not
follow that when a nominee is acting as a director of the
company, he is only acting as a director of that company and not
also as nominee of his principal. In Kuwait Asia Bank EC v
National Mutual Life Nominees Ltd < 1990 > 3 All ER 404 at
p 423, Lord Lowry in the Privy Council said:
prefer the interests of his principal over his duties to the
company, nevertheless, when there is no conflict of such
interests with his duty, he may take into account the interests
of his principal. The principal clearly had an interest in how he
carries out his duties as a director of the subsidiary, as well
as how he serves the interests of the principal. It does not
follow that when a nominee is acting as a director of the
company, he is only acting as a director of that company and not
also as nominee of his principal. In Kuwait Asia Bank EC v
National Mutual Life Nominees Ltd < 1990 > 3 All ER 404 at
p 423, Lord Lowry in the Privy Council said:
79 House and August < the nominee directors > owed three
separate duties. They owed in the first place to AICS < the
subsidiary > the duty to perform their duties without gross
negligence... < the second duty is irrelevant here >
...Finally, they owed a duty to their employer, the bank < the
parent company > , to exercise reasonable diligence and skill
in the performance of their duties as directors of AICS ... It
was in the interests of the bank that House and August should
discharge with diligence and skill the duties which they owed to
AICS ...
separate duties. They owed in the first place to AICS < the
subsidiary > the duty to perform their duties without gross
negligence... < the second duty is irrelevant here >
...Finally, they owed a duty to their employer, the bank < the
parent company > , to exercise reasonable diligence and skill
in the performance of their duties as directors of AICS ... It
was in the interests of the bank that House and August should
discharge with diligence and skill the duties which they owed to
AICS ...
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81 In R v Board of Trade, ex parte St Martins Preserving Co Ltd
< 1964 > 2 All ER 561, the appellant by a special
resolution declared that its affairs ought to be investigated by
an inspector appointed by the Board of Trade under s 164 of the
Companies Act 1948 (corresponding to s 232(1)(c) of our Act). The
Board of Trade contended that as the investigations proposed to
be carried out by the inspector related to the acts or conduct of
a receiver appointed by a debenture holder and such matters were
not within s 164. It was held by the Queen's Bench Division that
the Board of Trade was bound to appoint an investigator and
matters to be investigated fell within the affairs of the
appellant. Phillimore J said at p 565:
< 1964 > 2 All ER 561, the appellant by a special
resolution declared that its affairs ought to be investigated by
an inspector appointed by the Board of Trade under s 164 of the
Companies Act 1948 (corresponding to s 232(1)(c) of our Act). The
Board of Trade contended that as the investigations proposed to
be carried out by the inspector related to the acts or conduct of
a receiver appointed by a debenture holder and such matters were
not within s 164. It was held by the Queen's Bench Division that
the Board of Trade was bound to appoint an investigator and
matters to be investigated fell within the affairs of the
appellant. Phillimore J said at p 565:
82 What are `its affairs' when the company is in full control?
They must surely include its goodwill, its profits or losses, its
contracts and assets including its shareholding in and ability to
control the affairs of a subsidiary, and perhaps in the latter
regard a sub-subsidiary such as Atholl Houses, Ltd. In ordinary
parlance, the affairs of the applicant company must surely have
included its shareholding in T G Tickler, Ltd < the subsidiary
> , and its power in virtue of that shareholding to control
the board of that subsidiary and the disposition of Atholl
Houses, Ltd, the wholly owned sub-subsidiary.
They must surely include its goodwill, its profits or losses, its
contracts and assets including its shareholding in and ability to
control the affairs of a subsidiary, and perhaps in the latter
regard a sub-subsidiary such as Atholl Houses, Ltd. In ordinary
parlance, the affairs of the applicant company must surely have
included its shareholding in T G Tickler, Ltd < the subsidiary
> , and its power in virtue of that shareholding to control
the board of that subsidiary and the disposition of Atholl
Houses, Ltd, the wholly owned sub-subsidiary.
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100 However, there are a couple of Malaysian cases which are of
some assistance. In Kumagai Gumi Co Ltd v Zenecon-Kumagai Sdn Bhd
and ors < 1994 > 2 MLJ 789 at p 829, Anuar J, in dismissing
the petition and allowing the cross- petition made, inter alia,
in respect of the cross-petition under s 181 of the Malaysian
Act, an order requiring the petitioner to pay compensation to the
second, third and fourth respondents for the loss sustained by
those respondents, and the amount of such compensation to be
determined at an inquiry to be conducted before him. The third
respondent there was none other than Low himself. With the
exception that para (c) of s 216(2) of our Act is not present in
s 181 of the Malaysian Act, s 181 is in pari materia to our s
216(2) of our Act.
some assistance. In Kumagai Gumi Co Ltd v Zenecon-Kumagai Sdn Bhd
and ors < 1994 > 2 MLJ 789 at p 829, Anuar J, in dismissing
the petition and allowing the cross- petition made, inter alia,
in respect of the cross-petition under s 181 of the Malaysian
Act, an order requiring the petitioner to pay compensation to the
second, third and fourth respondents for the loss sustained by
those respondents, and the amount of such compensation to be
determined at an inquiry to be conducted before him. The third
respondent there was none other than Low himself. With the
exception that para (c) of s 216(2) of our Act is not present in
s 181 of the Malaysian Act, s 181 is in pari materia to our s
216(2) of our Act.
101 In fact, the very question before us was decided in another
Malaysian case. In Automobiles Peugeot SA v Asia Automobile
Industries Sdn Bhd & Ors < 1988 > 3 MLJ 209, the
petitioner sought to amend the petition under s 181 of the
Malaysian Act by adding a prayer seeking to make the alleged
oppressor personally liable to pay damages to the company in
which the oppression was said to have occurred. It was argued
that the proper course was for the petitioner to file a writ by
way of a derivative action. This was rejected by Siti Norma
Yaakob J, who held at p 210:
Malaysian case. In Automobiles Peugeot SA v Asia Automobile
Industries Sdn Bhd & Ors < 1988 > 3 MLJ 209, the
petitioner sought to amend the petition under s 181 of the
Malaysian Act by adding a prayer seeking to make the alleged
oppressor personally liable to pay damages to the company in
which the oppression was said to have occurred. It was argued
that the proper course was for the petitioner to file a writ by
way of a derivative action. This was rejected by Siti Norma
Yaakob J, who held at p 210:
102 The injured party in this action is the first respondent and s
181(1) and (2) of the Companies Act 1965, under which this
petition is presented and relief sought, was specially enacted to
overcome the problem posed by Foss v Harbottle < (1843) 2 Hare
461 > , and to strengthen the position of the minority
shareholders in limited companies. Since there is now statutory
sanction for a shareholder with a minority interest in a company
to institute proceedings against directors from conducting the
affairs of the company in a manner prejudicial to the company,
there is no longer any need for a derivative action to be filed
by the petitioner in the manner suggested by the second
respondent as that would amount to a duplicity of actions
relating to the same subject matter.
181(1) and (2) of the Companies Act 1965, under which this
petition is presented and relief sought, was specially enacted to
overcome the problem posed by Foss v Harbottle < (1843) 2 Hare
461 > , and to strengthen the position of the minority
shareholders in limited companies. Since there is now statutory
sanction for a shareholder with a minority interest in a company
to institute proceedings against directors from conducting the
affairs of the company in a manner prejudicial to the company,
there is no longer any need for a derivative action to be filed
by the petitioner in the manner suggested by the second
respondent as that would amount to a duplicity of actions
relating to the same subject matter.
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104 Since a claim for a < sic > damages against the second
respondent would be a natural consequence should the wrong acts
complained of by the petitioner be established, I had concluded
that the particular amendment objected to by the second
respondent should not prejudice him in any way and that it is
necessary in the circumstances to enable the court to determine
the issues in dispute between the parties.
respondent would be a natural consequence should the wrong acts
complained of by the petitioner be established, I had concluded
that the particular amendment objected to by the second
respondent should not prejudice him in any way and that it is
necessary in the circumstances to enable the court to determine
the issues in dispute between the parties.
105 In the landmark Malaysian case of Re Kong Thai Sawmill (Miri)
Sdn Bhd; Kong Thai Sawmill (Miri) Sdn Bhd and ors v Ling Beng
Sung < 1978 > 2 MLJ 227, an argument similar to that made
by counsel for the appellants was rejected by the Privy Council.
Lord Wilberforce took special pains to point out that the
Malaysian s 181, (which is more similar to our s 216 than either
the United Kingdom or the Australian provisions), is wider than
the then corresponding section of the United Kingdom Companies
Act 1948. His Lordship said, at pp 228 - 229:
Sdn Bhd; Kong Thai Sawmill (Miri) Sdn Bhd and ors v Ling Beng
Sung < 1978 > 2 MLJ 227, an argument similar to that made
by counsel for the appellants was rejected by the Privy Council.
Lord Wilberforce took special pains to point out that the
Malaysian s 181, (which is more similar to our s 216 than either
the United Kingdom or the Australian provisions), is wider than
the then corresponding section of the United Kingdom Companies
Act 1948. His Lordship said, at pp 228 - 229:
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112 At the time of the hearing below, provisional liquidators had
been appointed over the affairs of KZ and KPM and at the
conclusion of the hearing, both KZ and KPM were ordered by the
learned judge to be wound up and liquidators were appointed. Such
an order would have a bearing on further order to be made. In
Fargro v Derek < 1986 > 3 All ER 279, it was held that the
appointment of liquidators removed the need to order a derivative
action as the wrongdoers are no longer in control. Similarly, in
Re Hailey Group Ltd < 1993 > BCLC 459 at 473, Mr Richard
Sykes, QC sitting as a deputy judge observed:
been appointed over the affairs of KZ and KPM and at the
conclusion of the hearing, both KZ and KPM were ordered by the
learned judge to be wound up and liquidators were appointed. Such
an order would have a bearing on further order to be made. In
Fargro v Derek < 1986 > 3 All ER 279, it was held that the
appointment of liquidators removed the need to order a derivative
action as the wrongdoers are no longer in control. Similarly, in
Re Hailey Group Ltd < 1993 > BCLC 459 at 473, Mr Richard
Sykes, QC sitting as a deputy judge observed:
113 Paradoxically, the appointment < of receivers > means
that there is now no order which is appropriate for giving relief
in respect of the matters complained of. I certainly take the
view that s 461(1) requires me to consider what order is
appropriate at the time of the hearing and not, for example, what
order would have been appropriate at the date of the presentation
of the petition. (Emphasis is ours)
that there is now no order which is appropriate for giving relief
in respect of the matters complained of. I certainly take the
view that s 461(1) requires me to consider what order is
appropriate at the time of the hearing and not, for example, what
order would have been appropriate at the date of the presentation
of the petition. (Emphasis is ours)
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Karthigesu JA L P Thean JA Yong Pung How CJ |
Alan Thambiayah and Eric Chan (Rajah & Tann) for the appellant in CA No. 121 of 1994 and the respondent in CA No. 130 of 1994 and CA No. 131 of 1994
Alvin Yeo and Lawrence Tan (Wong Partnership) for the appellants in CA No.130 of 1994 CA No. 131 of 1994 and the first to fourth respondents in CA No. 121 of 1994
Alvin Tan (David Lim & Partners) for the fifth respondent in CA No. 121 of 1994
Alvin Yeo and Lawrence Tan (Wong Partnership) for the appellants in CA No.130 of 1994 CA No. 131 of 1994 and the first to fourth respondents in CA No. 121 of 1994
Alvin Tan (David Lim & Partners) for the fifth respondent in CA No. 121 of 1994
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